Petrodollar Currency WarfareWilliam Schmidt, - Tiger
Software's Creator
(C) 2007 William Schmidt, Ph. D. - All Rights
Reserved. No reproductions of this blog or
quoting from it
without explicit written consent by its author is
permitted.

Madison's Timely Warning,
"Of all the enemies to public liberty war is, perhaps, the most to be dreaded
because it comprises and develops the germ of every other. War is the parent of armies;
from these proceed debts and taxes...known instruments for bringing the many under the
domination of the few No nation could preserve its freedom in the midst of continual
warfare."
-- James Madison, Political Observations, 1795
=================================================================================== Petrodollar
Vicious Circle
As the US Dollar goes down in price, OPEC which sells all oil only in US Dollars,
naturally raises
its price. This increases the US Trade deficit. And the Dollar goes down still
more. So, OPEC raises
the price of oil some more. Eventually, oil prices will rise to a point where they
slow down demand for
oil, but bef before that point is reached, the stock market will turn down.
===================================================================================

Lowering US Interest
Rates Invites ARun on The
Dollar...
Will OPEC, CHINA and JAPAN Keep Accepting US Dollars?
What The Media Isn't Saying...This is a continuation of my Blogs 7/12/2007,
7/23/200710/28/2007

Yes, the Dollar is going down much more. Its fate is sealed by Bush's 2 trillion
dollar blunder,
the Iraq occupation. As I see it, the US will bleed billions and billions more
dollars in its wasteful war of
occupation of Iraq, because Bush is a certifiable sadist with an absolute inability to
admit a mistake and
the Democrats in Congress are playing it safe politically. They know they will win big in
2008, as long
as they stay just to the left of Bush. Not voting appropriations for Bush's is too much of
a risk for them.

Of course, the dollar is weak for other reasons, too. The magnitude of the US trade
deficit is quite
beyond normal powers of comprehension. Much of the world now sees that the US as an Empire
in decline, whose currency is pegged artificially high because most big Central banks
don't want to rock
their financial boats. But not all of them. Russia, France, Iran and Venezuela would love
to force Bush to
stop his aggressive blustering. They see in the dollar's extreme weakness a way to
do just that. And
then there are the OPEC countries. Their purchasing power is eroded by the deal they
struck 30 years
ago with the US, that forces them to only take US dollars in exchange for their oil.
They want out.
They have their own economies. They do not want the monetary policy of the US
foisted upon them,
as pegging their currency to the dollar tends to do. And now there is a currency
alternative. The
Euro is becoming big enough so that it can be used, instead of the US Dollar.

So, we now have a game being played where each player will pretend it is loyal to the
dollar, but
each player is watching the others from the corner of his eyes, knowing they are all
tempted to dump
dollars before it is too late. Add to that equation, 'Hellicopter' Ben
Bernacke's cut in interest rates. This
is a man who thinks it was bad monetary policy that made the Great Depression, who plainly
fawns for Wall Street praise and wants to delay a stock market crash until after the 2008
elections, so
that a Democrat will be seen as responsible. Yes,
I'm afraid the Dollar's fate is sealed. Its collapse
must be honestly and calmly faced without blinkers, blinders or partisian prejudice if we
are
to profit from it. My Blog will tell the real story, not the homogenized version the
networks
offer. To see the story unfold, come back
often to http://www.tigersoft.com/Tiger-Blogs/index.htm

The only question is will there be a swift,
terrible panic or will the decline continue to be
gradual and steady. When the chief economist at the International Monetary Fund
warns
|
about a possible "run on the dollar", as he did in January 2006, we should take
note. With
the dollar in a state of accelerating decline, we should be alarmed.

We all know the US has a massive governemental debt and an equally massive trade deficit.
These have signicantly worsened since 2000, when VP Cheney, whose nearly every public
utterance is discovered to be untrue, told us that "Deficits don't matter."
And we all know
the Chinese own more than half of the US governmental debt. In exchange for buying
our
US Treasuries, they get to dominate much of the US import market. They have a
tiger by the
tail. They dare not stop buying US Treasury notes or the whole Dollar house of
cards may come
down, and their massive holdings in US dollar debt will be halved in value, as the dollar
collapses
and their export economy screeches to a halt.

What is not widely known is that the dollar has been riding high for years because all oil
purchases made from OPEC nations must be made in US dollars. Back in 1975, when
Saudi Arabia needed to buy US military hardware and protection, it got the other OPEC
nations to accept an unpublicized US demand that all future oil purchases from OPEC must
be made in US dollars. This was monumnetal. It meant that every country that
wanted
to buy OPEC oil had to have large reserves of US dollars. It also meant that OPEC
nations
took their dollars and put many of them to buying US Treasury debt. 70% of all
international
trade was in dollars. US bankers loved this dynamic.

US Petrodollar exclusivity remained.unchallenged until
November 2000. "So long as the
dollar was the strongest currency, there was little reason to as well. But November was
when
French and other Euroland members finally convinced Saddam
Hussein to defy the United States
by selling Iraqs oil-for-food not in dollars, the enemy currency
as Iraq named it, but only
in euros. The euros were (placed) on deposit in a special UN account of
the leading French bank,
BNP Paribas. Radio Liberty of the U.S. State Department ran a short wire on the news and
the
story was quickly hushed..."This little-noted Iraq move to defy the dollar
in favor of the euro, in itself, was insignificant. Yet, if it
were to spread, especially at a point the dollar was already weakening, it could create a
panic selloff of dollars by foreign central banks and OPEC oil producers... (Additional)
hints in this direction were heard from Russia, Iran, Indonesia and even Venezuela. An
Iranian OPEC
official, Javad Yarjani, delivered a detailed analysis of how OPEC at some future point
might sell its oil
to the EU for euros not dollars. He spoke in April, 2002 in Oviedo Spain at the invitation
of the EU. All indications are
that the Iraq war was seized on as the easiest way to deliver a deadly pre-emptive warning to OPEC and
others, not to flirt with abandoning the Petro-dollar system
in favor of one based on the euro." (Source: http://www.williambowles.info/guests/euro_dollar.html
_ )By June 2003, all Iraqi international oil
sales were once again denominated in US Dollars, not Euros.
This has adversely impacted Iraq revenue, as the Euro has proven much stronger than the
Dollar..
(Source: http://www.informationclearinghouse.info/article9698.htm
)

Iran's Oil Bourse and US Planning for An Attack on Iran.

There has been a complete
absence of coverage of the following information in the
US national media.

"Beginning in March 2006, the Tehran government has plans to begin competing with
New York's NYMEX and London's IPE with respect to international oil trades  using a
euro-based international oil-trading mechanism.[7] The proposed Iranian oil bourse
signifies
that without some sort of US intervention, the euro is going to establish a firm foothold
in the
international oil trade. Given U.S. debt levels and the stated neoconservative project of
U.S. global domination, Tehran's objective constitutes an obvious encroachment on
dollar supremacy in the crucial international oil market...
"From a purely
economic and monetary perspective, a petroeuro system is a logical
development given that the European Union imports more oil from OPEC producers than
does the U.S., and the E.U. accounted for 45% of exports sold to the Middle East.
"Vice President Dick
Cheney's office wants the Pentagon to be prepared to launch a
potential tactical nuclear attack on Iran  even if the Iranian government was not
involved
with any such terrorist attack against the U.S.".

Why? World hegemony? Unwillingness to face the dislocations and changes brought
about by the sharp decline in Petrodollars: new taxation will be needed of the wealthy,
new energy policies and conservation will be needed and new trade policies will be
needed...

Foreign central bankers dominate currency trading. They appreciate the need
fragility
of trust when it comes to their own currencies. They want their country to keep
exporting
to the US market. This tends to lead them purchasing more dollar debt. However, they
must fear big speculators shorting the dollar or a "rogue" central bank (like
Russia or France)
trying to gett out of dollar assets ahead of others. With
the US Treasury virtually inviting
some defections among central bankers by lowering interest rates, some Central Bankers
are getting nervous. They are looking around at each other and wondering if the
others
can be trusted not to sell Dollars.If not,
they do not want to left holding a bag of depreciated
US Dollars. They can't talk publicly much about these concerns for fear of making
things
worse. But this is what they are thinking.

Dollar's double blow from Vietnam and Qatar

"Vietnam is planning to cut its purchases of US Treasuries and other dollar bonds,
raising fears
that Asian central banks with control over two thirds of the world's foreign reserves may
soon join
the flight from US assets. Vietnam is planning to cut its purchases of US
Treasuries and other dollar
bonds, raising fears that Asian central banks with control over two thirds of the world's
foreign
reserves may soon join the flight from US assets. Vietnam, which has mid-sized
reserves of $40bn,
iis seen as weather vane for the bigger Asian powers. Together they hold
$3,575bn of foreign
reserves, over 65pc of the world's total. China leads with $1,340bn, but South
Korea, Taiwan,
Singapore, and even Thailand all built up massive holdings. Separately, the gas-rich Gulf
state of Qatar
announced that it had cut the dollar holdings of its $50bn sovereign wealth fund
from 99pc to 40pc,
switching into investments in China, Japan, and emerging Asia."
(Source: October 4, 1907: http://sufiy.blogspot.com/2007/10/end-of-us-dollar-as-reserve-currency-of.html
)

Reuters reported, October 29, 2007
that OPEC will discuss the prospect of switching to
pricing its oil in US dollars to pricing in a basket of currencies. The
suggestion came from
Venezuela's energy minister, and Venezuela has been considered one of America's George
Bush's enemies.
But it's not just America's enemies who are concerned about the US dollar steep decline.
Inflation in
Saudi Arabia and the Gulf states is running rampant, and now the US is looking at lowering
its interest rate
yet again. Most Gulf states have their currencies pegged to the US dollar, which in turn
implies interest
rates must move accordingly as well. But the Gulf states should be putting up their rates,
not lowering them.
Reuters reports regional finance ministers and central bankers have met to review their
intentions to
create a monetary union and a single currency by 2010. The problem is some in the region
are unsure
how now to proceed given the impact a sliding US dollar is having on currency pegs. Each
country
has its own economic situation.
(Source: http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=E92D539F-17A4-1130-F5904C1416839340
)

Saudi Arabia "usually mimics every FOMC move. This time it has refused to cut
interest rates
in lockstep with the US Federal Reserve for the first time. According to
a UK Telegraph article
(Fears
of dollarcollapse as Saudis take
fright, September 2007), is signalling that the oil-rich
Gulf kingdom is preparing to break the dollar currency peg. This
could potentially cause a cascading
chain reaction across the Middle East -- setting off a stampede out of the dollar and towards either
a
basket of currency, or more likely the Euro.
(Source: http://bigpicture.typepad.com/comments/2007/09/fears-of-dollar.html
_

"US economy's net foreign indebtedness--the accumulation of two decades of running
larger and larger trade deficits--will reach nearly 25 percent of US GDP this year, or
roughly $2.5 trillion. Fifteen years ago, it was zero. Before America's net balance of
foreign assets turned negative, in 1988, the United States was a creditor nation itself,
investing and lending vast capital to others, always more than it borrowed. Now the trend
line looks most alarming. If the deficits persist around the current level of $400 billion
a year or grow larger, the total US indebtedness should
reach $3.5 trillion in three years
or so. Within a decade, it would total 50 percent of GDP."

Washington is of course aware of these problems, and believes that overwhelming military
strength
and the will to use it supply the answer, persuading or forcing other countries to support
the dollar
at its artificial level as the key to their own security. In an article entitled
"Asia: the Military-Market Link,"
and published by the U.S. Naval Institute in January 2002, Professor Thomas Barnett of the
US Naval
War College, wrote: "We trade little pieces of paper (our currency, in the form of a
trade deficit) for
Asia's amazing array of products and services. We are smart enough to know this is a
patently unfair
deal unless we offer something of great value along with those little pieces of paper.
That product is a
strong US Pacific Fleet, which squares the transaction nicely."

Consequenes of A Dollar Collapse:
Think of Weimar Germany. Think of Argentina.

"So what happens if OPEC as a group decides to follow Iraq's
lead and suddenly begins trading oil
on the euro standard? Economic meltdown. Oil-consuming nations would have to flush dollars
out of their
central bank reserves and replace them with euros. The dollar would crash in value and the
consequences
would be those one could expect from any currency collapse and massive inflation (think of
Argentina for an
easy example)

The Chinese government has begun a concerted campaign of economic threats
against the United States, hinting that it may liquidate its vast holding of US treasuries
if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in
recent days warning - for the first time - that Beijing may use its $1.33 trillion
(£658bn) of foreign reserves as a political weapon to counter pressure from the US
Congress.

Shifts in Chinese policy are often announced through key think tanks and
academies.

Described as China's "nuclear option" in the state media, such
action could trigger a dollar
crash at a time when the US currency is already breaking down through historic support
levels.

It would also cause a spike in US bond yields, hammering the US housing
market and perhaps tipping the economy into recession. It is estimated that China holds
over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has
cabinet rank), kicked off what now appears to be government policy with a comment last
week that Beijing's foreign reserves should be used as a "bargaining chip" in
talks with the US.

He Fan, an official at the Chinese Academy of Social Sciences, went even
further today, letting it be known that Beijing had the power to set off a dollar collapse if it
choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of
which a considerable portion is in US treasury bonds, contributes a great deal to
maintaining the position of the dollar as a reserve
currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange
rate is stable against the dollar.
The Chinese central bank will be forced to sell dollars once the yuan appreciated
dramatically, which might lead to a mass depreciation of the dollar," he told
China Daily.